Sterling
The Pound lost ground across the board yesterday as British inflation came in at 0.3% in February, marking no change on January’s figure. This weighed on Sterling because investors had anticipated a slightly higher reading of 0.4%. Rising restaurant and hotel bills were equalled out by falling transport costs and cheaper non-alcoholic beverages.
Sterling also lost ground in response to the deadly attacks in Brussels. ISIS claimed responsibility for bombs which killed dozens at the city’s international airport and a city metro station. Traders said the tragic events were likely to give the ‘LEAVE’ camp a boost in the run-up to June’s EU referendum. Some ‘Brexit’ supporters claimed the EU’s open border policy was partly to blame for the deadly attacks.
Euro
The Pound to Euro exchange rate tumbled by around a cent yesterday as weaker-than-expected consumer price index data and enhanced ‘Brexit’ bets weighed on Sterling.
In Germany ZEW’s economic sentiment survey came in at 4.3, confounding forecasts of 5.9. However, the report was largely overshadowed by the devastating events that took place in Brussels. The direct implication of the news was that investors increased their bets of Britain voting to leave the European Union later this year. Betting agency Betfair narrowed its odds of a ‘Brexit’ from 33% to 36%.
In the long term, however, a ‘Brexit’ scenario could actually prove more damaging to the Euro. As we have seen in the past, the single currency can be very susceptible to existential crises and if Britain were to exit the EU it could easily spark contagion among other European nations that might be eager to arrange new deals or follow the UK’s path and leave. The current focus of the ‘Brexit’ debate centres on the short term projections for Sterling but in the long term it is the single currency that could be most damaged by such a scenario.
US Dollar
Sterling plunged almost two cents against the US Dollar yesterday as ‘Cable’ traders reacted to the terrorist attacks in Belgium.
While the ‘Greenback’ benefitted from flights to safety, Sterling suffered from ‘Brexit’ anxieties in reaction to the horrific scenes in Brussels. EU referendum fears were already running high before the attacks, due to the surprise resignation of Tory work and pensions secretary, and high-profile ‘Brexit’ campaigner, Iain Duncan Smith over the weekend. The latest attacks, which are likely to weigh on sentiment towards Europe among Britons, acted to stoke these ‘Brexit’ bets.
In the US it was reported that manufacturing output rose minimally from 51.3 to 51.4.
Canadian Dollar
The Pound collapsed through support levels against the Canadian Dollar yesterday, coming close to its lowest level in 10 months.
GBP/CAD depreciated by almost three cents as ‘Brexit’ fears, softer-than-anticipated UK CPI and speculation that OPEC would curb production in April weighed on the currency pair.
Australian Dollar
Sterling shed three cents against the Australian Dollar yesterday, succumbing to a new 14-month low.
The ‘Aussie’ was boosted by some bright comments from Reserve Bank of Australia Governor Glenn Stevens, who noted that sturdy domestic growth prospects meant that interest rates would probably stay on hold for the foreseeable future. Stevens admitted that further easing was possible but did not choose to focus on this fact, which bolstered the appeal of the high-beta Antipodean currency.
New Zealand Dollar
The New Zealand Dollar completed the market-wide Sterling rout by registering daily gains of around two cents. Technical trading patterns and ‘Brexit’ fears suggest that the Pound could fall further against the ‘Kiwi’ over the next few days and weeks.
Data Released
14:00 USD New Home Sales (MoM) (FEB) Medium 3.2%
EUR Euro-Zone Consumer Confidence (MAR A) Medium -8